Piggybank theft row damages Schröder

Gerhard Schröder ignited a political row yesterday over plans to slash benefits for children of unemployed parents who have more than €750 (£500) in piggybank savings.

As part of its controversial attempt to reform Germany's welfare state, the chancellor's red-green coalition intends to overhaul welfare for the unemployed from next year.

Yesterday government officials confirmed that the amount of benefit paid to the children of unemployed parents, now €207 a month, would be slashed if the children had more than €750 in savings accounts.

The plan, affecting all under-14s, has provoked bitter opposition from unions as well as from leftwing critics inside Mr Schröder's ruling Social Democrat party.

Yesterday Germany's biggest selling tabloid, Bild, photographed the children of five unemployed parents, forlornly clutching their plastic piggybanks, or Sparschweine . Under the headline You're not getting my savings' book, the children pointed out they had other priorities - like mountain bikes and GameBoys.

"I share a pig with my brother Mario," added Kevin Völkner, eight, from Leipzig. Their modest €25 savings will not trouble the benefit authorities, but the welfare overhaul will discourage more assiduous savings.

"I want to go to a football training camp," Kevin added. "Mario wants a GameBoy."

The row threatens to be a turning point for Mr Schröder's beleaguered government, whose poll ratings have dropped to 26% since it embarked on reform last year.

The chancellor's party has suffered a series of election defeats, and some question whether he can survive until the general election in 2006. Means testing of unemployed child benefit is part of Mr Schröder's wider package of social and economic reforms, known as Agenda 2010, to revive the economy.

Germany's unemployed enjoy comparatively generous support that take into account their former salaries. Following recommendations by a commission chaired by the Volkswagen boss Peter Hartz, however, unemployment benefit and social assistance will merge from next year - leaving those on the dole, especially the long-term jobless, considerably worse off.

Yesterday critics lambasted the chancellor. "Children should not have to pay for the nonsense of this red-green government," said the rightwing opposition CSU party. "They should not become the victims of Hartz reforms." Klaus Uwe-Benneter, the Social Democrat party's general secretary, added: "Parents and grandparents should not be punished for trying to provide for their children."

Others complained the €750 limit would discourage children saving for university at a time when tuition fees are being considered as part of education budget cuts.

In the past companies have abused benefits by persuading older employees to take early retirement and register themselves as jobless. Irwin Collier, an economics professor at Berlin's Free University, acknowledged to the Guardian that many unemployed were "relatively well off", especially those whose partners had jobs.

"We should be under no illusions about how much money is knocking around in German piggybanks," said Dr Collier, adding: "Mr Schröder's position is very fragile. But he does have survival instincts. I would say the next election is for the opposition to lose."

Yesterday's unemployment figures provided little cheer - up to 4.4 million people, the highest July figure since reunification. Some 10.5% of all those in the labour market do not have a job.